Key Changes to the Employee Retention Credit

Feb 8, 2021 | COVID-19 Legal Update

Key Changes to the Employee Retention Credit There’s a lot of news coming out of Washington these days, but one development healthcare providers and their practices should greet as especially “good news” is a key change regarding the Employee Retention Credit (“ERC”).  As you may recall, under the original Coronavirus Aid, Relief, and Economic Security (“CARES”) Act , the ERC was not available to employers who received a loan pursuant to the Paycheck Protection Program (“PPP”).  This limitation, however, has now been changed. On January 26, 2021, the Internal Revenue Service released IR-2021-21, urging employers to take advantage of the ERC, which was modified and  extended for six months through June 30, 2021 by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (enacted on  December 27, 2020).  Importantly, even employers who received PPP loans may claim, retroactive to March 27, 2020, the ERC for qualified wages so long as those wages are not claimed as payroll costs in obtaining forgiveness of the PPP loan. Employers who meet certain criteria can now claim a refundable tax credit against the employer’s share of Social Security tax equal to 70% of the Qualified Wages they pay to employees after December 31, 2020, through June 30, 2021.  Employers can utilize the ERC for the first and second quarters of 2021 prior to filing their employment tax returns by reducing employment tax deposits. Small employers (i.e., employers with an average of 500 or fewer full-time employees in 2019) may request advance payment of the credit (subject to certain limits) on Form 7200, Advance of Employer Credits Due to COVID-19, after reducing deposits. Advances are not available for employers with more than 500 full-time employees in 2019. Qualified Wages are:

  • Limited to $10,000 per employee, per calendar quarter in 2021. Thus, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $14,000 per employee in 2021.
  • Generally, those wages paid to employees that are not providing services because operations were fully or partially suspended or due to the decline in gross receipts (for an employer that averaged more than 500 full-time employees in 2019).
  • Generally, those wages paid to all employees during a period that operations were fully or partially suspended or during the quarter that the employer had a decline in gross receipts regardless of whether the employees are providing services (for an employer that averaged 500 or fewer full-time employees in 2019).

Effective January 1, 2021, employers are eligible if they operate a trade or business during January 1, 2021 through June 30, 2021, and experience either:

  • A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or
  • A decline in gross receipts in a calendar quarter in 2021 of at least 20% in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be 50%).

Bottom line: it may be a good time to contact your accountant regarding these changes.  For more information, see COVID-19-Related Employee Retention Credits: How to Claim the Employee Retention Credit FAQs​​​​​​. The COVID-19 pandemic and response is an evolving situation.  All levels of government are engaged in the process of preparing new legislation, regulations and orders both to stem the spread of the virus and to provide relief to employers and employees.   We will continue to monitor the situation and provide updates as applicable, especially as such updates affect healthcare providers and their practices.